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Wealth Advisors Group

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Sustainable & Responsible Investing

The Case for Sustainable and Responsible Investing

 

In discussions with clients, we often touch upon socially responsible investment (SRI) options. SRI is defined by the US SIF: Forum for Sustainable and Responsible Investment (US SIF) as “an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.”

SRI Investors Run the Gamut

There are numerous types of investors seeking investments having a track record of financial performance—investors who are inspired to expand their investment strategy to include SRI, whether they are impelled by the values of their institution, the expectations of stakeholders, or by personal ideals. US SIF reports that these investors may include:

  • Individuals (the complete range from average investors through high-net-worth investors)
  • Foundations
  • Universities
  • Hospitals and Medical Schools
  • Credit Unions and Community Development Banks
  • Religious Institutions
  • Venture Capitalists
  • Responsible Property Funds
  • Public Pension Plan Officials

How Can I Make A Difference?

One of the challenges in developing criteria for identifying, evaluating and selecting these investments is that there are no current systems in place to evaluate companies’ sustainability claims and there are no disclosure requirements for SRA-related environmental, social or corporate governance initiatives.

According to Alex Davidson’s article “’Sustainable Investing’ Goes Mainstream” (Wall Street Journal, January 13, 2016), “There isn’t yet one agreed-upon definition of what makes an investment ‘sustainable.’ …The use of screens to avoid compromising sectors, such as tobacco, firearms, alcohol and gambling, became outdated. Now, the amount and availability of ESG data means investors can judge companies individually, rather than having to eliminate whole sectors based on their values.”

The good news is that there are multiple approaches to SRI. The US SIF Foundation’s 2014 Report on Sustainable and Responsible Investing Trends in the United States posits that there are two strategies for responsible investors that can be used together or separately:

  1. ESG incorporation, which considers such criteria as environmental, community, social and corporate governance in investment analysis and the development of a portfolio of multiple asset classes. The US SIF Foundation’s report indicates that community investing is a significant component that “seeks explicitly to finance projects or institutions that will serve poor and underserved communities in the United States and overseas.”
  1. Filing shareholder resolutions, as well as other types of shareholder activism for stockholders in publicly traded companies. Stockholders can advocate responsible business practices, which includes earmarking capital investment in environmental and social issues.

Where Are the SRI Growth Areas?

The US SIF Foundation’s report indicates that there has been a growth in SRI: “The total US-domiciled assets under management using SRI strategies expanded from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014, an increase of 76 percent. These assets now account for one out of every six dollars under professional management in the United States.” SRI investments are included in a broad field of asset classes and products that may include:

  • Stocks
  • Cash
  • Fixed Income
  • Private Equity
  • Venture Capital
  • Real Estate

Mutual funds and alternative investments account for some of the robust growth in SRI investments between 2012 and 2014. The US SFI Foundation indicates that there has been a 37 percent increase in the number of ESG mutual funds in that two-year period, with assets increasing from $641 billion in 2012 to $1.93 trillion (yes, trillion) in 2014. Alternative investments—which include social venture capital, private equity, hedge funds and property funds—saw a 70 percent increase in assets between 2012 and 2014.

Your Take-Away …

Every investor, whether individual or institutional, is seeking investments that match risk tolerance and anticipated financial performance. Many investors are also considering the advantages of environmental, social and corporate governance investments when evaluating their options. Choosing the right socially responsible investments for a portfolio involves careful evaluation. Please contact me for more information and a forthright discussion on whether SRI is appropriate for your portfolio


David Urovsky is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. It is not our position to offer legal or tax advice. Wealth Advisors Group is not an affiliate of Lincoln Financial Advisors Corp. CRN-1481149-042516